science

Texas ratio

Texas ratio is a science topic covered in the lgStudy science library. This page brings together a partial reference excerpt, illustrations, worked examples, real-world applications and a short study plan, so you can understand Texas ratio rather than just read about it. In short: The Texas ratio is a metric used to assess the extent of a bank's credit problems. Developed by Gerard Cassidy and others at RBC Capital Markets, it is calculated by dividing the value of the lender's non-performing assets (NPL + Real Estate Owned) by the sum of its tangible common equity capital and loan loss reserves.

Key takeaways

Texas ratio belongs to science; place it in that map before memorising details.
Learn the definition first, then one example that makes the definition concrete.
Connect Texas ratio to a quantity you can measure, compute or draw — that is where exam questions come from.
Reproduce the core statement of Texas ratio from memory before moving on to harder problems.

Reference excerpt

The Texas ratio is a metric used to assess the extent of a bank's credit problems. Developed by Gerard Cassidy and others at RBC Capital Markets, it is calculated by dividing the value of the lender's non-performing assets (NPL + Real Estate Owned) by the sum of its tangible common equity capital and loan loss reserves. While analyzing Texas banks during the early 1980s recession, Cassidy observed that banks typically failed when this ratio reached 1:1, or 100%. He later identified a similar pattern among New England banks during the early 1990s recession.

References Barr, Alistair (May 23, 2008). "Bank failures to surge in coming years". MarketWatch.com. Retrieved 11 Nov 2010.

External links Current Texas Ratios for all US Banks and Credit Unions Current Texas Ratios for US Banks Updated May 21st 2010 by Amateur Investors Complete list of US banks and their Texas ratios as published in December of 2008 and an updated listing published in October of 2009; the original blog entry includes notes how the tables were created (that the ratio was multiplied by 100 for easier comprehension, etc.)

Worked examples

Example 1 — a first encounter with Texas ratio

Start with the simplest possible case. Write down what Texas ratio claims or describes in one sentence, then invent the smallest concrete situation in which that sentence is true. In science, the smallest case is usually a single object, a single equation or a single measurement. Check that every symbol or term in your sentence has a meaning in that case.

Example 2 — changing one variable

Take the situation from Example 1 and change exactly one quantity: double it, halve it, or set it to zero. Predict what should happen to Texas ratio before you calculate. Comparing your prediction with the result is the fastest way to find out whether you understand the idea or only the words.

Example 3 — an exam-style question

Typical questions about Texas ratio ask you to (a) state it precisely, (b) apply it to given data, and (c) explain a limitation. Practise writing all three answers in under five minutes; the third part is what separates a full-mark answer from an average one.

Applications of Texas ratio

In research: Texas ratio appears in science research whenever the underlying quantities have to be modelled precisely. Papers usually cite it as a starting assumption and then explore where it breaks down.
In technology and industry: Engineering practice reuses Texas ratio in design rules, simulations and safety margins. Knowing the idea lets you read a specification sheet and understand why the numbers look the way they do.
In the classroom: Texas ratio is common in secondary-school and first-year university syllabi. It links to neighbouring topics Bank stubs, Banking, Credit, so understanding it makes those chapters shorter.
In everyday life: Look for Texas ratio outside the textbook — in sport, cooking, traffic, electronics or the sky above you. An example you found yourself is remembered far longer than one you were given.

Affiliate

Preply — study more efficiently by working with a personal tutor. 50% off.

How to study Texas ratio in 20 minutes

Read the reference excerpt below once, without taking notes.
Close the page and write down what Texas ratio means in your own words.
Compare your version with the excerpt and mark what you missed.
Work through the three examples above with pen and paper.
Explain Texas ratio out loud to somebody else — or to Teacher Smith in the lgStudy chat.

Frequently asked questions

What is Texas ratio in simple terms?

Why does Texas ratio matter?

Because it connects several science ideas at once: it gives you a definition you can apply, a quantity you can calculate, and a way to check whether a result is plausible.

How should I study Texas ratio?

Read the excerpt, restate it from memory, then work through the examples and applications listed on this page. The five-step study plan above takes about twenty minutes.

What does this page cover?

It gives you a compact reference excerpt plus original lgStudy explanations, examples, applications and study material on Texas ratio.